Foreign demand for australian minerals export

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Reference no: EM132405623

Australia is a small open economy with a flexible (floating) exchange rate system. Use the Mundell-Fleming model (i.e. the open-economy IS-LM-IP model) to analyse what will happen to income, the exchange rate, and the trade balance (net exports) in response to the following shocks. Carefully explain the adjustment process in each case. 

a) A significant fall in the foreign demand for Australian minerals export. 

b) The Abbott government implements a fiscal expansion program, other things held constant, and the Reserve Bank of Australia keeps the interest rate fixed.

Reference no: EM132405623

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